Why Non-Traded REITs Target Retirees
Non-traded REITs are one of the most consistently mis-sold investment products in the financial industry — and retirees are the primary targets. If you or a parent holds a non-traded REIT, you need to understand why these products are pushed to seniors, how they cause devastating losses, and what legal options exist for recovery.
Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers, has pursued non-traded REIT claims before FINRA arbitrators across the country. Our attorneys — former Wall Street defense counsel who once helped design and defend the products we now challenge — know exactly why non-traded REITs target retirees and how to prove it in arbitration.
What are non-traded REITs?
A Real Estate Investment Trust (REIT) is a company that owns, operates, or finances income-producing real estate. Publicly traded REITs trade on major exchanges, offer daily liquidity, and are subject to SEC reporting requirements.
Non-traded REITs are different. They do not trade on any exchange. They have limited or no redemption options. They charge high upfront fees — typically 10–15% of the investment amount. And they are sold almost entirely through broker-dealers to individual investors, with seniors making up a disproportionate share of buyers.
The defining feature is illiquidity. Once you invest, your money is typically locked up for 5 to 10 years. During that time, you cannot sell your shares on the open market. You can only redeem through the company’s limited repurchase program — if one exists — and often at a steep discount to the original investment.
| Feature | Publicly traded REIT | Non-traded REIT |
|---|---|---|
| Liquidity | Daily — trades on exchange | None — 5–10 year lock-up |
| Upfront fees | Low (0.5–2%) | High (10–15%) |
| Broker commission | 1–3% | 6–12% |
| Valuation transparency | Daily market price | Estimated NAV; may be outdated |
| SEC reporting | Quarterly and annual filings | Limited; often delayed |
| Distribution source | Rental income, property sales | Rental income, borrowed money, investor capital |
| Surrender penalty | None | Often applies to “tender” repurchases |
Why brokers push non-traded REITs to retirees
Non-traded REITs target retirees because the commission structure incentivizes brokers to sell them to exactly the clients who should not own them.
Commissions of 6–12%. A broker selling $500,000 of a non-traded REIT to a 72-year-old client earns $30,000 to $60,000 in commissions. The same $500,000 invested in a diversified portfolio of publicly traded REITs earns the broker roughly $5,000 to $10,000. The financial incentive is overwhelming — and it is no coincidence that seniors, who often have large account balances and rely on trusted advisors, are the primary buyers.
Yield promises that attract income-dependent retirees. Non-traded REITs are marketed with stated distribution rates of 5–8%, sometimes higher. For a retiree who needs portfolio income, these numbers are compelling. The problem: these distributions often do not come from actual investment returns. Many non-traded REITs pay distributions from borrowed money or returned investor capital. In SEC filings, you can find this information in the “Sources of Distributions” section — but the sales pitch never mentions it.
Illiquidity that seniors cannot afford. A 75-year-old who needs access to their money for medical expenses, long-term care, or unexpected costs cannot afford a 5–10 year lock-up. Yet non-traded REITs are routinely sold as “income investments” to people who may need liquidity within the lock-up period.
What generic advice misses: Most articles explain what non-traded REITs are and warn that they are illiquid. They stop there. Our insider perspective comes from having been on the other side. We know the sales training scripts broker-dealers used. We know the internal compliance failures that allowed these products to be recommended to 70- and 80-year-old clients. We know that firms set internal “concentration limits” for non-traded REITs — and then routinely waived them. This is the information that wins arbitrations.
The real losses: named REITs and their failures
The non-traded REIT industry has produced a trail of devastating losses for senior investors. Here are some of the most significant:
| Non-traded REIT | Peak value / assets | What happened | Estimated senior investor losses |
|---|---|---|---|
| Inland American Real Estate Trust | $11.2B at peak | Restructured into a non-traded REIT with significant losses; shareholders received shares worth fractions of their investment | $2.5B+ in aggregate losses |
| American Realty Capital Properties | Multiple non-traded REIT offerings | After going public, share prices declined; accounting irregularities discovered | $1B+ in investor losses |
| Griffin-American Healthcare REIT III | $2.7B | Share repurchase programs suspended; valuations cut | 30–40% of original investment for many holders |
| Cole Credit Property Trust | $7B+ | Merged and restructured; investors who did not opt into public REIT saw significant write-downs | 15–30% losses on original investment |
| BDCA (Business Development Corporation of America) | $1.3B | Illiquid; distributions cut; NAV written down | 40–50% losses for many holders |
These are not hypothetical scenarios. They are real products that real brokers sold to real retirees — and the losses are documented in SEC filings, FINRA arbitrations, and our own case files.
FINRA suitability violations in non-traded REIT sales
When a broker sells a non-traded REIT to a senior investor, multiple FINRA rules may be violated.
FINRA Rule 2111 (Suitability). Every recommendation must be suitable based on the customer’s age, investment experience, time horizon, liquidity needs, and risk tolerance. Selling a 10-year illiquid product with 10–15% upfront fees to a 75-year-old who needs income and liquidity is textbook unsuitability.
FINRA Rule 2111 — Concentration. Even if a small allocation to non-traded REITs might be suitable for some investors, concentrating 30%, 50%, or 70% of a senior’s portfolio in a single illiquid product violates concentration suitability requirements.
FINRA Rule 2111 — Customer-specific suitability. The suitability analysis must consider the specific customer. A 72-year-old widow with moderate risk tolerance and a need for portfolio income should not hold non-traded REITs — regardless of what the product’s marketing materials say about “distributions.”
SEC Regulation Best Interest (Reg BI). Since June 2020, Reg BI requires brokers to act in the best interest of the customer when recommending securities. Recommending a non-traded REIT to a retiree who cannot afford illiquidity — when a publicly traded REIT provides similar exposure with daily liquidity and lower fees — violates Reg BI.
FINRA Rule 3110 (Supervision). Brokerage firms must supervise their advisors’ recommendations. When firms allow concentrations of non-traded REITs in seniors’ accounts without objection, the firm itself shares liability.
| Violation | What it requires | How we prove it |
|---|---|---|
| Unsuitability (Rule 2111) | Recommendations must match client profile | We compare the REIT’s characteristics against the client’s age, risk tolerance, time horizon, and liquidity needs |
| Concentration | No single product should dominate a conservative portfolio | We show the percentage allocation and compare it to industry standards |
| Reg BI violation | Recommendations must be in the customer’s best interest | We demonstrate that publicly traded alternatives provided the same exposure with better terms |
| Supervisory failure (Rule 3110) | Firms must supervise advisors’ recommendations | We obtain internal compliance records showing the firm waived concentration limits or failed to review |
Filing a FINRA arbitration claim for non-traded REIT losses
If you or a parent holds non-traded REITs that were purchased on the recommendation of a financial advisor, you may have a FINRA arbitration claim. Here is what that process looks like.
1. Case evaluation (1–2 weeks). We review the account, identify suitability violations, and assess the strength of your claim at no cost.
2. Filing the claim (2–4 weeks). We file a Statement of Claim with FINRA detailing the suitability violations, products involved, and damages sought.
3. Discovery (3–6 months). Both sides exchange documents. We request the advisor’s compliance file, internal emails, and training materials. This is where our experience on the defense side pays off — we know which documents to request and what they should contain.
4. Hearing (1–2 days). An arbitrator or panel hears evidence and renders a decision.
5. Award and collection. If we win, the award is paid by the brokerage firm. FINRA awards are enforceable in court.
| Claim element | What we prove | Typical evidence |
|---|---|---|
| Unsuitability | Product was wrong for the client’s profile | Account applications, risk questionnaires, age and income data |
| Misrepresentation | Advisor misrepresented risks, fees, or liquidity | Marketing materials vs. actual terms; client testimony |
| Concentration | Position size exceeded reasonable limits | Portfolio allocation data; industry concentration standards |
| Supervisory failure | Firm should have caught the violation | Supervisor review logs; compliance waivers; internal concentration limits |
What to do if you hold non-traded REITs
If you or a parent purchased non-traded REITs on the recommendation of a financial advisor:
- Gather all documentation — statements, trade confirmations, marketing materials, and any notes from meetings with the advisor.
- Determine the product name and current value — check recent account statements or the REIT’s most recent NAV filing.
- Do not accept a tender offer without legal advice — non-traded REIT companies sometimes offer to buy back shares at pennies on the dollar. Accepting may waive your right to pursue a claim.
- Request a FINRA Rule 2165 hold if ongoing exploitation is suspected.
- Call 1-888-885-7162 for a free consultation. We will evaluate your claim at no cost and with no obligation.
Recovery is possible. Our firm has a 98% success rate in securities arbitrations. We work on contingency — no recovery, no fee. We have recovered millions for investors who were sold non-traded REITs that were unsuitable for their age, risk tolerance, and liquidity needs.
Learn more: Elder Financial Abuse Hub | Senior Investment Fraud Warning Signs | Variable Annuity Fraud Targeting Retirees | How to Report Elder Financial Abuse by a Broker
Call 1-888-885-7162 for a free, confidential consultation. Haselkorn & Thibaut, P.A., operating as Investment Fraud Lawyers, has handled over $520 million in securities cases. No recovery, no fee.